Feds want taxes from counties

Rachael Levy

Wednesday, Aug. 28, 1996 | 11:59 a.m.

The federal government wants three Nevada counties to refund millions of dollars in property taxes, a demand whose results could range from budget belt-tightening to crushing debt.

The Justice Department has accused Clark, Nye and Mineral counties of illegally collecting taxes from military and Nevada Test Site contractors for four years.

It sued in 1994 to force the return of $1.5 million from Clark County, $4.5 million from Nye and about $800,000 from Mineral. While the demand for repayment is largely philosophical for Clark County -- where $1.5 million is 0.3 percent of the $484 million budget -- it could create economic tailspins in the rural counties, officials said.

In Clark County, $1.5 million pays for a new fire station. In Nye, $4.5 million funds 90 percent of the sheriff's office.

"It doesn't need to get into the millions to cause problems in Mineral County," said District Attorney Brian Kunzi, explaining that 30 percent of all property taxes is collected from Army contractors. "I really don't know how we'd pay it back."

The issue, hotly debated in courts across the country for years, has increased importance in Western states such as Nevada where the federal government's presence is widespread, Clark County Deputy District Attorney Jan Stewart said.

Eighty-seven percent of Nevada is controlled by the federal government, which operates the Hawthorne Army Ammunition Depot, Test Site and Air Force bombing range with the help of Las Vegas-based corporations.

Local government officials maintain that the federal contractors should be taxed the same as the restaurant owner who leases space. Currently, the counties receive Payment Equal to Taxes from the government, aimed at minimizing the financial hardship caused by the loss of revenue, county officials said.

Courts have held that governments can tax the portion of leased property called "beneficial use," defined as the percentage that assists a private company in making a profit.

But the Justice Department argues that the three counties have taxed land and equipment that belong to the federal government and that has been held unconstitutional. The government does not lease the equipment to the contractors, but gives them full use of it.

The government and contractors sued the three counties in 1994, seeking reimbursement. The Justice Department's trial attorney declined to comment.

The federal lawsuits came on the heels of a similar case brought against Nye County when it tried to tax an Air Force contractor in the 1980s. Nye County lost the case and the Nevada Legislature amended the statute allowing the beneficial use tax.

But when Nye, Clark and Mineral counties tried to collect the taxes, the contractors, at the instruction of the government, refused to pay, county officials said. The Test Site contractors are:

* REECo, which acted as housekeeper for the Test Site and was responsible for construction, housing and food.

* EG&G, hired to collect scientific data and design diagnostic equipment.

* Wackenhut, which provided security at the Test Site.

* Raytheon, which designed tunnels, drill holes and other engineering projects. Replaced Fenix & Scisson of Nevada and Holmes & Narver Inc.

Nye and Mineral sued the Test Site and Army contractors to force payment, which prompted the federal government to slap civil suits on them and Clark County.

This time around, things are shaping up differently. In March, the amended statute withstood the scrutiny of U.S. District Judge Lloyd George, leaving only the question of whether the counties are properly assessing the tax.

The three cases -- one in Reno and two in Las Vegas -- are set for trial in October. The final outcome will set a state precedent determining if and how counties can tax government contractors.